October 28, 2013

As city leaders in Sacramento struggle, so far unsuccessfully, to reach agreement with the police officers' union on a new labor contract, they should keep a nervous eye on Vallejo. It could be a harbinger of bad things to come.

Burdened by police and firefighter pay and pension costs and a collapsing housing market, Vallejo, the largest city in Solano County, declared bankruptcy in 2008, the first city to do so in our state in modern times, but not, as it sadly turned out, the last.

Today, two years after it emerged from bankruptcy protection, Vallejo remains mired in debt, with a $5.2 million budget deficit that, if no adjustments are made, is projected to grow to $8.9 million by the end of the next fiscal year.

Much of Vallejo's debt is attributable to its public-employee pension obligations. When it declared bankruptcy in 2008, Vallejo's annual payment to the California Public Employees' Retirement System was $8.82 million, or 11 percent of the city's general fund budget. Today, the city's pension payment is $15 million, 18 percent of its general fund.

Vallejo's powerful police union, like Sacramento's, has refused to come to terms on a new contract. The current contract is set to expire in December. Meanwhile, the police union is bankrolling a slate of labor-friendly City Council candidates in the November election. If they win, a new council majority is expected to approve contracts that favor the union and place the city's finances in further jeopardy.

Sacramento's labor struggles are not all that dissimilar. Here, the police officers' union and the city remain far apart in contract negotiations, with the major stumbling block the union's reluctance to require its officers to contribute to their very generous pensions unless they receive pay raises to cover those costs.

City Manager John Shirey expects Sacramento will have to resort to binding arbitration, a high-stakes option. An arbitrator is unelected and unaccountable to anyone, and is limited to two options: accept the city's best and final offer or the union's. No middle ground is permitted.

Binding arbitration favors unions, which is why unions have fought to pass arbitration ordinances up and down the state. To avoid bankruptcies, preserve jobs and maintain acceptable levels of service, cities need to hold the line on labor costs. Public-employee unions need to curb their demands. Can they do that? Vallejo and Sacramento are testing whether anyone has learned anything from the spate of bankruptcies.

If they fail to heed the warning, they do so at their peril. Voters could take matters into their own hands, if, as seems likely, there is an initiative on the 2014 ballot that would authorize public-employee pensions to be rolled back.

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